business combination with intercontinental bank plc[1][1]
TRANSCRIPT
September 2011
Business Combination with Intercontinental Bank PlcPresentation to Investors and Analysts
The information presented herein is based on sources which Access Bank Plc (the “Bank”) regards dependable. This presentation may contain forward looking statements. These statements concern or may affect future matters, such as the Bank’s economic results, business plans and strategies, and are based upon the current expectations of the directors. They are subject to a number of risks and uncertainties that might cause actual results and events to differ materially from the expectations expressed in or implied by such forward looking statements. Factors that could cause or contribute to differences in current expectations include, but are not limited to, regulatory developments, competitive conditions, technological developments and general economic conditions. The Bank assumes no responsibility to update any of the forward looking statements contained in this presentation.
Disclaimer
The information should not be interpreted as advice to customers on the purchase or sale of specific financial instruments. Access Bank Plc bears no responsibility in any instance for loss which may result from reliance on the Information. Access Bank Plc hold copyright to the Information, unless expressly indicated otherwise or this is self-evident from its nature. Written permission from Access Bank Plc is required to republish the information on Access Bank or to distribute or copy such information. This shall apply regardless of the purpose for which it is to be republished, copied or distributed. Access Bank Plc’s customers may, however, retain the Information for their private use. Transactions with financial instruments by their very nature involve high risk. Historical price changes are not necessarily an indication of future price trends. Investors are encouraged to acquire general information from Access Bank Plc or other expert advisors concerning securities trading, investment issues, taxation etc in connection with securities transactions. The Information contained in this presentation is subject to, and must be read in conjunction with, all other publicly available information, including, where relevant any fuller disclosure document published by the Bank. Any person at any time acquiring the securities must do so only on the basis of such person’s own judgment as to the merits of the suitability of the securities for its purposes and only on such information as is contained in public information having taken all such professional or other advice as it considers necessary or appropriate in the circumstances and not in reliance on the information contained herein. The information is not tailored for any particular investor and does not constitute individual investment advice.
2 Business Combination with Intercontinental Bank
Parent Company : Access Bank Plc is a full service Commercial Bank registered in Nigeria on February 8, 1989 with RC number 125384
Subsidiaries : 9 Banking Subsidiaries (United Kingdom and 8 other African Countries)
No of Employees : 1751 Professional staff
Accounting : Local GAAP and IFRS
Credit Rating : A- / BBB / A- (RWN) / BBB- (RWP) (GCR/Agusto/S&P(nga)/Fitch(nga))
Partnerships :
Risk Management : Basel II Capital Accord
Focus Segments : Institutional (Private and Public Sector), Retail and Middle market (Value chain)
Channels : 150 Business Offices 264 ATMs, 310 POS
Share Capital : Authorised share capital of N10 billion (18 billion ordinary shares and 2 billion preference shares of 50 kobo each respectively)
Paid up share capital of N8.94 billion ( 17.9 billion ordinary shares of 50 kobo each)
OTC Unlisted GDR
United Kingdom
United Kingdom
Access Bank Overview
3 Business Combination with Intercontinental Bank
A Compelling Transaction
Strategic Rationale
Transaction Structure and Key Terms
Plans for Integration
Financial Impact
Stakeholder Benefits
Agenda
4 Business Combination with Intercontinental Bank
In 2002, we embarked on a transformation journey with a strong conviction that pro-active responses to forces driving banking consolidation could enable us migrate from a fourth-division Bank to a top 3 Bank by 2012
Consolidating Position in a Market with Attractive Outlook
5 Business Combination with Intercontinental Bank
Large Banks
Foreign Banks
Mid-Tier Banks
Merchant Banks
Family-controlled Banks
Large Banks
Mid-Tier Banks
Niche BanksState-owned
Banks
Middle Squeeze
Mid-tier, family-controlled and state-owned banks collectively lose share to
large banks, foreign banks and specialized firms with unique value
propositions
2002 2012
Middle Squeeze
The Opportunity to Transform from Mid-Tier to Scale is Compelling
• Attainment of corporate vision
and aspirations
• Leading player in clearing and
settlement platforms
• Improved return on
investments (ROE)
• Significantly lower cost of
funds and improved risk rating
• Reap benefits of ‘flight to
safety’
• Significantly redefine
corporate direction and
aspirations
• Potentially be shut out of
settlement and clearing bank
roles
• ROE and risk rating
sustainability issues
• Fundamentally redefine
corporate direction and
aspirations
• Rationalize a significant
portion of the bank’s financial
and other resources
• Focus exclusively on
corporate and investment
banking
Key
Im
pli
cati
on
s &
Co
nsi
der
atio
ns
6 Business Combination with Intercontinental Bank
A Compelling Transaction
Strategic Rationale
Transaction Structure and Key Terms
Plans for Integration
Financial Impact
Stakeholder Benefits
Agenda
7 Business Combination with Intercontinental Bank
Strategic Rationale for the Merger
The combination creates one of Nigeria’s top 3 banking Groups by several indices1
Merger creates an industry leader with multiple product strengths, leadership in focus areas of the financial services sector, high growth potential and unrivalled brand appeal
2
Meaningful opportunities to unleash Access Bank’s competencies and resources in Treasury, Trade Finance, Cash Management and Corporate Finance on an expanded Customer base
3
Significant growth in retail banking segment with the combined entity having a customer base of over 5 million customers
4
Lower cost of acquisition due to CBN intervention - significant de-risking of Intercontinental’s balance sheet and significant opportunities to build up regulatory capital internally
5
Increased balance sheet size will provide combined entity with an enhanced capacity to provide credit to a larger combined wholesale and retail client base.
6
Merger delivers operational synergies in employee and branch productivity, leading to resource optimization
7
8 Business Combination with Intercontinental Bank
Rationale Evident in Much Enhanced Market Position
Source: Company ReportsNote: Financial data as of June 2011.
9 Business Combination with Intercontinental Bank
Combined Entity (June 2011)
Metric Market Share Market Share Ranking
Total Loans 6.7% #5
Total Deposits 8.7% #4
Branches 9.4% #3
Customer Count 20% #33.0% 17.0%
2.5% 6.9%
3.3% 5.3%
5.4% 1.3%
Access Intercontinental
A Compelling Transaction
Strategic Rationale
Transaction Structure and Key Terms
Plans for Integration
Financial Impact
Stakeholder Benefits
Agenda
10 Business Combination with Intercontinental Bank
Transaction Overview
Transaction Description
Reorganization of share capital via a scheme of arrangement under Section 539 of CAMA and Section 118 of ISA
Placement of 75% of reconstituted capital with Access Bank through PSI Limited and placement of 15% of capital with Asset Management Corporation of Nigeria (AMCON)
Intercontinental Bank to be absorbed into Access by way of a scheme of merger within 12 months
Key Terms
Access Bank via PSI Limited to inject N50bn into Intercontinental Bank as investment amount
AMCON to recapitalize Intercontinental Bank to a zero NAV
Existing shareholders to retain 10% shareholding (post-money)
Existing shareholders shall retail 1 share for every 7 shares previously held
Intercontinental Bank will be delisted from the Nigeria Stock Exchange (NSE)
Intercontinental Bank will operate as a high-performing subsidiary of Access Bank up to the date of merger
Intercontinental Bank shareholders who wish to exit are able to sell their shares to Access Bank at N2.75 per share
Where an employee does not wish to continue in employment of Access Bank, they are entitled to fully funded gratuity benefits
Key Transaction and Integration risks have been addressed in the Transaction Implementation Agreement (TIA) e.g. Liquidity risk, loss run rate, Deferred Tax Assets (DTA), cancellation of preference shares, Change of Control etc
11 Business Combination with Intercontinental Bank
Key Transaction Timelines
Submission of Expression of Interest (EOI) Due Diligence commences (Phases 1 -3) Access Bank selected as preferred bidder for Intercontinental Bank Signing of a Memorandum of Understanding Signing of a Transaction Implementation Agreement (TIA) CBN approval of TIA SEC / FHC clearance of Scheme document Court-ordered meeting of Intercontinental Bank
Annual General Meeting of Intercontinental Bank
Extra-ordinary General Meeting of Access Bank
Obtain Court Sanction of Scheme
Apply to NSE for delisting of shares
Settlement of Financial Accommodation by AMCON
Access transfers Investment Amount into Intercontinental’s account with CBN
Allotment of Investor Shares
Access reconstitutes Board and Management of Intercontinental
16 December 2009
25 August 2011
15 February 2010
12 October 2010
28 March 2011
6 July 2011
7 July 2011
Status
26 September 2011
29 September 2011
26 September 2011
26 September 2011
29 September 2011
29 September 2011
29 September 2011
29 September 2011
3 October 2011
12 Business Combination with Intercontinental Bank
A Compelling Transaction
Strategic Rationale
Transaction Structure and Key Terms
Plans for Integration
Financial Impact
Stakeholder Benefits
Agenda
13 Business Combination with Intercontinental Bank
Governance and Management of Intercontinental Bank
Access Bank’s rigorous Group Governance
framework will guide and facilitate the
governance and management of
Intercontinental Bank
Intercontinental Board and Management will
be accountable to Access Bank Plc on a day
to day basis
Upon recapitalization, Intercontinental Board
will be reconstituted to include Access Bank
executives as Non-Executive Directors and
Executive Directors. Representation will also
include 2 independent directors
A detailed 2-year business plan (2011-2012)
for Intercontinental Bank has been approved
by Access Bank Board of Directors.
14 Business Combination with Intercontinental Bank
We have Designed a Robust Integration Planning Process
Phase I: 3–4 Months Phase II: 12 Months
Acquisition viaPlacing of Shares and injection
of investment amount
Single Entity Day 1
Project Definitionand Planning Subsidiary Phase
Merger Phase
3 Months
Integration Execution
Scheme of Merger
Program Management
9 Months
The post-acquisition integration program of both banks will be executed in two broad phases. Access and Intercontinental, assisted by Accenture have been involved in integration planning process for the last 6 months:
Completed
KEY
Integration effort formalized early on signing of MOU
Boards and management of both banks fully involved
Strong Project Management Office advised by Accenture
Integration teams structured around key value delivery areas that have been identified as biggest synergy opportunities
38-man Integration team
15 Business Combination with Intercontinental Bank
Access Bank Board
Access Bank Executive Committee
Program Management Office
Integration Team Leads/Program Management Office Staff
Customer
Management
Employee
Management
Head Office
Consolidation
Branch
Rationalisation
Treasury Consolidation
IT IntegrationFin Mgt.&
RegulatoryReporting
Ops. Process Alignment &
Consolidation
Communications
Culture & Change
Credit Risk Consolidation
Integration Objectives and Guiding Principles
16 Business Combination with Intercontinental Bank
Guiding Principles Objective
Achievement of a lean organization to ensure the
efficient and effective utilization of resources
Right Sizing of Branch & other resources
Adoption of Centralized Procurement / Sourcing
Centralization of Core functions and Adoption of Shared
Services to ensure consistency in service delivery
standards and customer experience across various
touch points in a cost - efficient manner
Optimize Customer and Products Experience to ensure
customer satisfaction and retention
Adoption of Single IT Application Infrastructure /
Architecture to ensure synergy, improved quality service
delivery and seamless integration
Entrench Effective Risk Management
Ensure Appropriate and Effective Branding &
Communications
1
2
3
4
5
6
7
8
Achieve significant cost reduction through branch rationalization, IT & Operations consolidation and de-duplication of enterprise functions and other efficiency initiatives
Enhance corporate performance through implementation of key initiatives identified in the Commercial Strategy
Minimize operating risks by identifying and managing key risks and developing appropriate mitigation actions
Retain the customer base: Less than 10% customer attrition, by defining a clear retention plan focusing on highly valued, “at risk” customer segments
Retain key talent: More than 90% retention of top talent to address skills gaps
Improve employee engagement and development through a robust and comprehensive assimilation and learning development program
Improve Service Quality and customer experience through adoption of a single technology and operations platform, process alignment, consolidation and centralization programs; and Access Bank’s Project 5* program
1
2
3
4
5
6
7
A Compelling Transaction
Strategic Rationale
Transaction Structure and Key Terms
Plans for Integration
Financial Impact
Stakeholder Benefits
Agenda
17 Business Combination with Intercontinental Bank
Merger by absorption of Intercontinental Bank into Access Bank
PSI Limited will be issued 15.0 billion ordinary shares of 50 Kobo each corresponding to N7.5 billion in the share capital of Intercontinental Bank for the injection of the
investment amount
Following the reorganization of capital, Intercontinental Bank will place the subscription shares with AMCON and PSI
Limited
Authorized capital of the Bank shall be increased by 12.4 billion ordinary shares of 50 Kobo each, to the target share
capital of N10.0 billion comprising 20.0 billion ordinary shares of 50 Kobo each
Reduction of share premium account from N146,712,000,000 to zero (0) to offset the negative retained
earnings
Retention of N1,000,000,000 (comprising 2,000,000,000 ordinary shares of 50 Kobo each) in the Share Capital
account attributable to Existing Shareholders
Pro-rata reduction and cancellation of 11,850,000,000 ordinary shares of 50 Kobo each in the share
capital of Intercontinental Bank
Cancellation of 5,056,000,000 Shares purchased directly or indirectly with the funds of Intercontinental Bank
Fundamental Changes to Intercontinental’s Capital Structure
Current Authorized Ordinary Share Capital –
Current Issued and Fully Paid-up Ordinary Share Capital –
Unissued Shares –
N12.25 billion 24.5 billion ordinary shares of 50 Kobo each (A)
N9.453 billion 18.906 billion ordinary shares of 50Kobo each (B)
5.594 billion Ordinary Shares of 50 Kobo each (A–B)
1
3
2
4
5
2
3
1
18 Business Combination with Intercontinental Bank
Existing Holding
(Bn shares)
Post-Scheme Holding
(Bn shares) % New Holding
Existing Shareholders 18.906bn 2.0bn 10.0
AMCON -- 3.0bn 15.0
Project Star Investment Ltd -- 15.0bn 75.0
Total 18.906bn 20.0bn 100.0
6
7
8
31 December 31 December 31 December
2009 2010 2011E
Net Loans 158,100 119,211 68,804
Gross Loans 715,398 310,834 104,257
Non-Performing Loans 561,563 200,428 61,141
AMCON Bonds 0 108,264 343,284
Deferred Tax Asset 163,652 153,611 1,705
Total Assets 632,850 708,588 765,411
Customer Deposits 527,289 677,527 610,075
CBN Loan 100,000 100,000 0
Total Equity (380,116) (325,892) 34,210
Total Liabilities and Equity 632,850 708,588 765,411
Intercontinental Bank’s Balance Sheet is Dramatically Transformed
AMCON and Access Bank capital injection has dramatic impact on balance sheet
Impact of AMCON process and Access recap on Intercontinental Balance Sheet Comments
Acquisition of a ‘Good Bank’ facilitated by the Asset Management Company of Nigeria (AMCON)
Over NGN 480bn of NPLs transferred to AMCON during 2010 and 2011
Further injection of c.N550bn by AMCON to recapitalise Intercontinental Bank to a position of zero (0) NAV
Subsequent injection of c.N50bn by Access Bank into Intercontinental Bank to achieve an adequate level of regulatory CAR at Intercontinental Bank
Repayment of CBN loan with AMCON Bonds
Selected ratios in 2011E: CAR: 15.0% Loans/Deposits: 11% Liquidity Ratio: 83% NPL Ratio: 59%
19 Business Combination with Intercontinental Bank
Source: Company disclosures (1) Including Minority Interest.
(1)
Pro Forma Financial Position
20 Business Combination with Intercontinental Bank
Group Financial Highlights for Access Bank plus Intercontinental Bank (June 2011)
(N ‘m) Access Bank Intercontinental Bank Aggregate
Profit and Loss
Net Interest Income 27,172 (11,566) 15,606
Fees and Commissions 9,791 8,523 18,314
Other Operating Income 3,193 18,507 21,701
Total Operating Income 40,157 15,464 55,621
Total Operating Expenses (24,679) (33,020) (57,699)
Provisions/Write-backs (5,115) 19,236 14,121
Profit Before Taxes 10,396 1,680 12,076
Profit After Taxes 8,079 1,346 9,425
Balance Sheet
Total Assets 984,434 708,781 1,693,215
Gross Loans 549,171 180,577 729,748
Net Customer Loans 512,419 95,427 607,846
Customer Deposits 639,112 620,036 1,259,148
(NGNbn) 2011F 2012F 2013F
Profit & Loss
Net Interest Income (16.7) 55.5 72.2
Non Interest Income 12.2 15.5 19.9
Operating expenses (58.0) (52.4) (50.7)
(Provisions)/writebacks 22.1 (7.0) (14.4)
Profit/(Loss) Before Tax and Extraord. (40.5) 11.6 27.0
Extraordinary items (193.3) 0.0 0.0
Profit/(Loss) before Tax (233.8) 11.6 27.0
(0.1) (3.5) (8.1)Profit/(Loss) after Tax (233.9) 8.1 18.9
Balance Sheet
Net Loans 68.8 80.2 86.5
AMCON Bonds 343.3 380.6 418.0
Treasury bills and other eligible bills 121.1 260.7 420.3
Due from other banks 64.7 92.6 144.9
Total Assets 765.4 990.3 1,229.6
Customer Deposits 610.1 817.7 1,078.3
Interbank Deposit 73.5 80.1 0.0
Total Liabilities 731.2 948.0 1,158.3
Total Equity 34.2 42.3 71.4
21
Intercontinental Bank – Forecast Financials & Synergies
Forecast P&L and Balance Sheet Likely Impact of Synergies under Access Management
21 Business Combination with Intercontinental Bank
(NGNbn) 2011F 2012F 2013F
Synergies
Revenue 2.0 2.5 2.8
Cost 3.9 11.3 8.1
Financial 0.0 5.0 5.0
Total Synergies (pre-tax) 5.9 18.8 15.9
Total Synergies (post-tax) 5.0 16.0 13.5
Pre-Synergies
Profit/(Loss) after Tax (233.9) 8.1 18.9
Earnings per Share n.m. 0.40 0.95
RoE n.m. 21% 33%
Post-Synergies
Profit/(Loss) after Tax (228.9) 24.1 32.4
Earnings per Share n.m. 1.20 1.62
RoE n.m. 63% 57%
Source: Company disclosures (1) Including Minority Interest.
(1)
Access Bank plc
Funding
26%
(42%)
26%
0%
22%15%
19%
Access Intercontinental Group
Illustrative Pro Forma Capital Position Funding the Capital Injection
• The transaction will be funded with Access Bank internal financial resources
• Access Bank is one Nigeria’s best capitalized banks with a CAR of 26% as of HY2011
• Access Bank also have a very robust liquidity position, with a net free cash position of N111.6bn as at June 2011
Current Position
Source: Company disclosures
AMCON Recap of ICB
Access Bank injection into ICB
Business Combination with Intercontinental Bank22
Access Plus: Impact of Combination on Business Segments
23 Business Combination with Intercontinental Bank
Retail Banking
Rank #1 or #2 in retail banking in Nigeria by market share and profitability Significantly enhanced revenue-generation potential driven by a combination of increased customer base,
enhanced distribution capacity and access to a large pool of stable retail deposits Increased capabilities in retail product development and management Retail economies of scale driving lower operating expenses
Commercial Banking
Rank #1 or #2 in commercial banking in Nigeria by revenues, deposits & LAD Increased geographic presence enables increased penetration of existing customers and acquisition of
new customers thereby enhancing revenue potential Economies of scale and best practice sharing driving operating expenses lower
Institutional Banking
Rank #4 in Corporate/Institutional Banking by revenue, deposit, and loans & advances Build capabilities to play and harness opportunities in key sectors of the economy Deploy corporate e-payment solutions to better serve customers’ needs and enhance revenue
Financial Markets
Rank #1 Project & Structured Finance Bank in Nigeria
Rank #1 Treasury & Financial Markets Bank in Nigeria Enhanced revenue potential by deploying financial markets offerings to larger pool of customers Increase transaction volumes by transferring Access’ efficiency, expertise and execution capabilities Opportunities to reduce cost of funds by deploying Access’ risk governance practices
Plans for Intercontinental Subsidiaries
24 Business Combination with Intercontinental Bank
Intercontinental Bank Ghana Limited
Intercontinental Bank United Kingdom
Intercontinental Bank has operating subsidiaries in Nigeria, Ghana and UK:
Intercontinental Bank Ghana will be merged with Access Bank Ghana to create the fourth largest lender in the Ghanaian market
Intercontinental Bank United Kingdom will be sold to suitable investors in line with FSA requirements
Intercontinental Finance and Investments Limited
Intercontinental Securities Limited
Intercontinental Homes Savings and Loans Limited
Intercontinental Registrars Limited
Intercontinental Capital Markets Limited
Intercontinental Wapic Insurance Plc.
Intercontinental Properties Limited
Intercontinental Trustees Limited
Intercontinental Bureau de Change Limited
Flexmore Technologies Limited
Banking Subsidiaries
Non- Banking Subsidiaries
Non-banking subsidiaries present a significant opportunity for building capital internally given that a number of the investments have been written down
They also present the opportunity of reviewing the universal banking license in the context of a large scale business franchise which Access Bank now becomes by virtue of this business combination
Action
Action
A Compelling Transaction
Strategic Rationale
Transaction Structure and Key Terms
Plans for Integration
Financial Impact
Stakeholder Benefits
Agenda
25 Business Combination with Intercontinental Bank
Benefits to Stakeholders
26 Business Combination with Intercontinental Bank
Nigerian Banking Sector / Economy
Access Bank Stakeholders
Intercontinental Bank Stakeholders
To sustain a robust ROE, Access Bank needs to achieve scale. This transaction facilitates that
goal
Supports Access’s growth ambitions enabling the Bank to accelerate the realization of its
objectives
Enlarged distribution network for Access Bank
Low cost of acquisition.
Enhanced Industry position and risk rating
The merger safeguards a significant degree of capacity in the Nigerian banking sector that would
otherwise have been lost
The transaction is of systemic importance. Careful consolidation of the banking sector is essential
to the future stability and growth of the Nigerian economy
Transaction will enable shareholders to salvage value despite a negative NAV position
Facilitate the survival of the Bank and save it from possible liquidation;
Intercontinental Bank will remain part of one of Nigeria’s leading banking institutions;
Position the Bank for realization of operational synergies through the future merger with Access
Bank;